(b) Cost-Push Inflation

An increase in factor input costs (i.e., wages and raw materials) pushes up prices. The price rise which is the result of increase in the production cost is cost-push inflation. The Keynesian school suggested controls on prices and incomes as direct ways of checking such an inflation and, ‘moral suasions’ and measures to reduce the monopoly power of trade unions as indirect measures (basically, cost-push inflations chiefly used to happen due to higher wage demanded by the trade unions during the era).

Today, the governments of the world use many tools to check such inflations—reducing excise and custom duties on raw materials, wage revisions, etc.

2. Post-1970s

After the rise of Monetaristic School of Economics in the early 1970s (monetarism developed in opposition to post-1945 Keynesian idea of demand management), the school provided monetarist explanation for inflation, the so-called ‘demand-pull’ or the ‘cost-push’ which is excessive creation of money in the economy.